CED

November 2013

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Margins
True Grit:
Behaviors of the
Dealer
Admit it or deny it, but CE dealers operate in a profitability plight compared
to other parallel distribution industries – experts offer tips to break away
from 'average.'
BY JOANNE COSTIN
The numbers tell a story that
AED dealers may not want to hear.
A comparison of AED Cost of Doing
Business reports with similar reports
compiled by other wholesale distribution associations,* reveals AED dealers
are consistently, over the economic
cycle, in the bottom quartile of
financial performance.
"Over time we have become an
industry of low expectations with
respect to financial returns," said
Mike Marks, managing partner
for Indian River Consulting Group,
speaking to dealers attending AED's
Executive Forum held in September.
To shed light on the profit plight,
Marks delved into association
financial research, interviewed six
extremely profitable construction
equipment dealers and two investors,
and moderated a panel of industry
experts at AED's Executive Forum,
held in September. Recognized for his
expertise in distribution channel strategies and supply chain management,
Marks offers considerable insight on a
topic that many dealers are reluctant
to discuss.
Based on a poll of dealers
conducted at the Forum, there
doesn't seem to be a consensus on
the reasons why AED dealers rank
so low on profit. Nearly half said
they didn't think there was only one
reason. Another 27.4 percent felt
26 | www.cedmag.com | Construction Equipment Distribution | November 2013
the reason is that most dealerships
were comfortable with running a
lifestyle business.
The Facts
A direct comparison of AED and
MHEDA dealer financials provides a
starting point for analysis. There is
nearly a 21-point spread between
the absorption rate of MHEDA
median performers and AED median
performers, and a 20-point spread
between high-profit performers.
The median MHEDA dealer's profit
from parts, service and rental paid
for 91.5 percent of expenses, while
the AED median dealer covered just
70.7 percent. Additionally, high-profit